EU faces new standoff with China over shoes
(International Herald Tribune)
Updated: 2006-02-21 09:20

http://www.iht.com/articles/2006/02/20/business/tariff.php

After a battle last summer over textile imports, the European Union faces a potentially tense new trade standoff after it accused China and Vietnam on Monday of dumping cheap shoes on European markets and prepared to impose tariffs to protect European producers.

The move to impose tariffs on surging imports of footwear could inflame trade tensions between the EU and China. But Peter Mandelson, the EU trade commissioner, faces a delicate task: reconciling calls from protectionist-minded countries like Italy to coddle home-grown industries, while preventing a rerun of the embarrassing pile-up of women's undergarments at European ports the last time the EU got tough on cheap clothes.

"Mandelson hates this situation," said Emma Ormand, an international trade consultant at PricewaterhouseCoopers in London. "He got caned in the bra wars and he absolutely does not want a 'Bra Wars 2,'" she said. Mandelson, she noted, is trying to seek a compromise that balances free trade with European political realities.

The anti-dumping duties could be phased in from April 7, two days before a general election in Italy, where competition between domestic clothing makers and their Asian rivals is a political issue.

Peter Power, a spokesman for Mandelson, said on Monday that an investigation showed the need for the EU to take some form of protectionist measures. Imports of leather shoes to the EU from China amounted to 95 million pairs in the 11 months ended March 2005. Over the same period, imports to the EU from Vietnam totaled 120 million pairs.

Commission officials said Monday that they were still calculating the scale of the increase for Vietnam. But they said figures for imports from China rose 300 percent from January to October 2005, compared with the like period in 2004.

Power said the Asian manufacturers were able to produce cheap shoes in such large numbers because of state support including "cheap finance, nonmarket land rent, tax breaks and improper asset valuation." EU officials had concluded that there was "evidence of dumping and injury," Power added.

But even as he prepares measures against the Asian imports, Mandelson also is taking steps to avoid a repeat of what happened in 2005, and to mollify China at a time when governments in Europe and the United States are seeking to persuade China to do more to stop piracy of music, movies and luxury goods.

Under the EU suggestions, if a majority of member state governments agree, tariffs could start as low as about 4 percent by early April. That temporary level could rise to just below 20 percent by early October. But Mandelson also would aim to ratchet any duties lower if China and Vietnam later show signs of making changes.

Rather than impose quotas, which the EU used last year in a protracted battle with China over imports of undergarments, officials seem likely to avoid measures that would limit the freedom of retailers to meet their import needs. Any measures in this case would leave the actual amounts of imports untouched.

Horst Widmann, the president of the Federation of the European Sporting Goods Industry, which includes Adidas and Timberland among its members, called measures to exclude athletic footwear from tariffs a step in the right direction. Mandelson is "making a genuine effort to minimize the harmful effects of antidumping," said Horst Widmann, the president of the Brussels-based group.

But Widmann warned that about a quarter of all leather footwear imported by the European sporting goods industry would still be affected by the proposed antidumping measures, leaving consumers paying higher prices and threatening the health of the retail sector and hurting the European economy.

EU officials have contested claims of massive price increases, saying that the possible duties could increase the cost to consumers by less than �, or $1.20, on a pair of shoes that cost �5 or more.

To meet an April 7 deadline, Mandelson must send proposals to EU member states this week or next. Brussels insiders said a decision - requiring a simple majority - could be taken in mid-March.

But Mandelson still could face a hard sell to get through a compromise arrangement.

Ormand of PricewaterhouseCoopers said an "unholy alliance" of countries like Italy, which want greater protection, and countries in Scandinavia, which look askance at tariff plans, could be a deal breaker.

"This is not a done deal," she said. "There are clear risks for Mandelson because if his plan falls through he could be seen as failing to do anything to protect the Italian manufacturers."

Mandelson traveled to Milan and Rome in recent weeks to meet with Italian industry chiefs and government officials in a bid to temper their desire for punitive duties of as much as 100 percent. But there are signs of continued dissatisfaction. Italian shoemakers are unhappy that Mandelson planned to exclude sports shoes from the antidumping measures and are complaining that the duties will be too low.

"This proposal is not satisfactory," Leonardo Soana, a director with the Italian National Shoemakers Association, told Reuters. "The Italian industry has been waiting for months for measures to slow the imports of Chinese footwear," Soana said.

Mandelson will resume contacts in the next few days, including with the chiefs of the Italian industry lobby Confindustria. In those meetings, Mandelson is likely to remind Italian business leaders that the future of Europe is ever-more open markets and that the region should embrace, rather than reject, the benefits of a free and open global economy.

That view was supported on Monday by Robert Sturdy, a spokesman on trade issues for British Conservatives in the European Parliament, who warned that the introduction of trade restrictions could weaken the European case for opening up markets in developing countries to goods from wealthier countries during the continuing round of global trade talks that began in Doha in 2001.

"We must accept that Asian countries make cheaper shoes than we can in Europe and find ways for European and Asian businesses to work together rather than just impose barriers," Sturdy said.

"The 'Bra Wars' saga showed what happens when the EU gets it wrong and Commissioner Mandelson shouldn't allow himself to be influenced by a bunch of Mediterranean cobblers," he said.